3W Power/AEG Power Solutions Reports Results for Q2 2013

AEG Power Solutions (FWB:3W9):

3W Power SA (Prime Standard, ISIN GG00B39QCR01, 3W9), the holding company of AEG Power Solutions B.V., a leading global provider of power electronic systems and solutions for industrial power supplies and renewable energies, today announced results for Q2 2013. Order intake in Q2 2013 was €66.1 million, down 23.9% year-on-year (Q2 2012: €87.0 million) but up 10.3% compared to the prior quarter (Q1 2013: €60.0 million). Order backlog in Q2 2013 was €96.8 million, down 26.6% year-on-year (Q2 2012: €131.9 million) but up by 3.0% compared to the prior quarter (Q1 2013: €94.0 million).

Revenue in Q2 2013 was €57.9 million, down 41.0% compared to Q2 2012 (€98.2 million) and down 38.7% compared to the prior quarter (Q1 2013: €94.4 million) as expected due to low order intake during Q1 2013, primarily in Solar and POC. EBITDA in Q2 2013 was €(11.6) million including one-time expenses of €1.6 million. This corresponds to EBITDA of €4.8 million (including one-time expenses of €0.2 million) in Q2 2012 and €6.7 million in Q1 2013. The decrease in EBITDA was due to lower volumes in Solar and POC and an increased provision for restructuring costs.

At the end of Q2 2013, the cash position of the Company was €49.5 million, up €16.5 million from €33.0 million at the end of Q1 2013 and its gross accounts receivable balance was down to €79.4 million.

Solar System Solutions – Solar

Solar orders were €10.1 million in Q2 2013, down 66.9% year-on-year (Q2 2012: €30.6 million) and down 14.4% compared to the prior quarter (Q1 2013: €11.8 million), mainly due to the failure to secure new Solar project orders. Solar order backlog was €10.4 million in Q2 2013, down 51.6% year-on-year (Q2 2012: €21.5 million) and down 23.5% compared to the prior quarter (Q1 2013: €13.6 million). The market for large project orders in Solar remains difficult. Industry consolidation, a continued reduction in inverter prices and stretched payment terms/customer financing requirements pose challenges for AEG Power Solutions.

Solar revenue was €12.5 million in Q2 2013, a decrease of 51.1% year-on-year (Q2 2012: €25.6 million) and down 69.2% compared to the prior quarter (Q1 2013: €40.6 million) as a result of a particularly strong Q1 2013. Solar EBITDA was €(3.4) million in Q2 2013, down from a year ago (Q2 2012: €3.2 million) and from the prior quarter (Q1 2013: €9.1 million).

Despite the Q2 2013 revenue under performance, AEG Power Solutions continues to develop and build its Solar business. For instance in Q2 2013, AEG Power Solutions’ Indian operations completed commissioning 100MW of central inverters manufactured in-country and has another 40MW under commissioning. The Company’s systems in India have yielded excellent energy production performance, exceeding customers’ expectations and projections. In the US, AEG Power Solutions’ new modular MPV solar solution, which is designed by our Dallas subsidiary and manufactured in the US, has been selected for projects in the US as well as Japan. AEG Power Solutions continues to demonstrate its capability to globally provide value-added services including industry leading monitoring and control systems insuring the customers’ return on their investment.

Power Controller Solutions – POC

Orders in POC were €5.6 million in Q2 2013, down 15.0% year-on-year (Q2 2012: €6.6 million) and down 15.0% compared to the prior quarter (Q1 2013: €6.6 million) due to the continued weakness in POC. POC order backlog was €6.1 million in Q2 2013, down 81.3% year-on-year (Q2 2012: €32.7 million) up slightly at 2.0% compared to the prior quarter (Q1 2013: €6.0 million).

POC revenue was €5.2 million in Q2 2013, down 80.1% year-on-year (Q2 2012 €26.1 million) and down 65.4% compared to the prior quarter (Q1 2013: €15.0 million) driven by the continued weakness in the polysilicon market. POC EBITDA was €(1.9) million in Q2 2013, down from €7.0 million year-on-year and down from €3.5 million in the prior quarter.

POC is not yet showing any indication of recovery. As such, Power Controller revenue in support of the polysilicon manufacturing will reduce to zero over the near term and then return, at a low level in late 2015. AEG Power Solutions continues to focus on market and product diversification and management has applied the Company’s industry leading technology into other expanding industrial and smart energy management markets to offset the poly market decline.

Energy Efficiency Solutions – EES

Order intake in EES showed slight momentum with a strong order intake of €50.4 million in Q2 2013, up 1.3% year-on-year (Q2 2012: €49.8 million) and up 21.5% compared to the prior quarter (Q1 2013: €41.5 million). Both Data/IT Solutions and Industrial Power Solutions contributed to the increased order intake compared to Q2 2012. However, in Industrial Power Solutions, the Group still faces delays in orders and investment cutbacks by customers. The Communication Power Solutions and Converters business continues to lose market share. EES order backlog stood at €80.3 million in Q2 2013, up 3.3% year-on-year (Q2 2012: €77.7 million) and up 7.9% compared to the prior quarter (Q1 2013: €74.4 million). The book to bill ratio at the end of the June increased from 1.1 to 1.3.

Revenue was €40.2 million in Q2 2013, down 13.7% compared to the prior year (Q2 2012: €46.5 million) as both industrial and commercial UPS were impacted following low order intake in the previous quarter but improved 3.7% compared to the prior quarter (Q1 2013: €38.8 million). Data/IT Solutions contributed with increased revenue which was partially offset by reduced revenue in Communication Solutions and Converters. EBITDA for EES in Q2 2013 was €(1.9) million. This compares to €(0.7) million in Q2 2012 and €(3.6) million in Q1 2013. As with revenues, profit growth in our Data/IT Solutions business was offset by operating losses in the Communications Solutions and Converters business.

In 2012 AEG Power Solutions made the determination to classify the Telecom Converter business in Lannion, France as a discontinued operation/asset held for sale. Following the change in management in April 2013 and in consultation with the Board of directors, the decision has been made to retain and re-organize the French legal entity in Lannion. This entity’s expertise in power electronics engineering will be used by the Group to accelerate product introduction and improve operations throughout the EES business. In connection with this change, there will be a head count reduction of approximately 20 people. Per IFRS, as a result of the decision, the financial statements for the Company have been represented in Q2 2013 and Q2 2012 to reflect the performance of Lannion. Accordingly, the assets and liabilities of Lannion have been included in the consolidated assets and liabilities of the Group and the operational loss of €2.4 million (2012: €2.6 million) is included in continued operations.

Outlook

AEG Power Solutions is a power electronics company and world-class supplier of power electronics systems and solutions in several vertical markets like oil and gas, transportation, solar, data and IT and more. For AEG Power Solutions, power electronics is an enabling technology. As a well-diversified power electronics provider, AEG Power Solutions has the ability to level market variations – both geographically and across markets throughout the power electronics spectrum. "Since I re-joined the Company in April of this year, my focus has been on quickly shifting the business strategies back to our major strength – Systems Solutions – and away from selling pure product solutions. At the same time we immediately started aligning the organizational structure and leadership to support the return to our successful Systems strategies” states Bruce A. Brock, CEO of 3W Power and AEG Power Solutions. "While AEG Power Solutions is like a large ship and sometimes slow to turn, I can assure everyone that based on my knowledge of the market and of AEG Power Solutions we are making our ‘return to our strengths’ quickly and are thus positioning our Company to capture power systems and micro-grid solution opportunities immediately.”

Aside from continued global macroeconomic weakness, the most significant challenge faced by the Company in the past year has been the lack of investment in new polysilicon capacity in the market. POC remains in the midst of a major investment trough in the capex cycle for the expansion of polysilicon production capacity. Unfortunately, this oversupply situation for polysilicon is expected to continue for the foreseeable future. In the past, the Company’s participation in polysilicon systems through POC was a leading contributor to positive free cash flow for the Company. For the foreseeable future, AEG Power Solutions does not anticipate a return of this lucrative business. However, with its industry leading power electronics technology, POC will continue to be a center of innovation and technological strength for emerging smart energy management system needs by establishing reference sites which incorporate complex applications of the future. Accordingly, the Company continues to focus on developing promising new (non-polysilicon) applications and system solutions such as advanced industrial applications and power control systems for energy storage, smart grid solutions, and off-grid systems. Mr. Brock states: "as a demonstration of our return to our systems strategy, the Company has signed a teaming agreement with a strategic partner to provide support for the development of secure and resilient on-grid solutions as well as isolated off-grid distributed power generation systems and storage for mission critical infrastructure starting in North America.” These solutions are derived from and are expected to generate sales in all product lines and management believes that the Company is uniquely positioned to address this emerging market development. These activities are expected to contribute meaningfully to growth and profitability in the medium-term.

AEG Power Solutions’ Solar business has a footprint in promising growth regions around the world and the Company continues to seek significant growth in the key solar end-markets of Asia, India, Africa, the U.S., South America and Eastern Europe. While Solar has a substantial project pipeline, the segment is impacted by changing government subsidies, increased competition, market consolidation and an uneven order intake for large projects which make projections difficult. The solar revenue performance in the second quarter was disappointing and the outlook for the rest of the year is increasingly challenging.

As AEG Power Solutions’ core business and source of much of the Company’s technology, the Company’s industrial EES business provides a solid revenue base that helps to insulate the Company from the more volatile Solar and POC vertical markets. The Company expects the Industrial Power Solutions segment of EES to grow moderately in 2013. Growth and any uptick in profitability are expected to come from the commercial Data and IT business unit due to new leadership, differentiated product releases and incremental increase in service activities. Profitability in the telecommunications sector will remain challenging and the Company continues to find ways to reduce exposure to this market.

For the Group, replacing the cash flows and profitability of polysilicon systems business is proving to be a challenge. Unfortunately for 2013, due to unrealized previous business strategies, AEG Power Solutions does not expect to achieve overall sales volumes at 2012 levels nor will Normalized EBITDA be comparable to 2012 performance. On a segment level for 2013, AEG Power Solutions currently anticipates the following:

• EES is expected to achieve modest year-on-year revenue growth;
• Solar orders and revenue are extremely difficult to predict in the current environment; while the Company has a large pipeline in key growth areas, Solar revenues are likely to remain disappointingly below previous year levels;
• POC orders and revenue will remain weak with limited profitability;

Bruce A. Brock emphasizes: "While we are faced with a difficult economic environment and unrealized strategies, we are confident that with the return to our Systems strategies coupled with the strength of our robust products and our market diversity, we are well positioned for profitable growth and value creation in the future. AEG Power Solutions is a power electronics company with decades of industry leading power electronics technologies providing value added system solutions for our customers in the basic infrastructure vertical markets across the world.”

About 3W Power/AEG Power Solutions:

3W Power S.A. (WKN A0Q5SX / ISIN GG00B39QCR01), based in Luxembourg, is the holding company of AEG Power Solutions Group. The Group is headquartered in Zwanenburg in the Netherlands. The shares of 3W Power are admitted to trading on Frankfurt Stock Exchange (ticker symbol: 3W9).

AEG Power Solutions (AEG PS) Group is a global provider of power electronics systems and solutions for all industrial power requirements offering one of the most comprehensive product and service portfolios in the area of power conversion and power control. Two complementary operating business segments, Renewable Energy Solutions (RES) and Energy Efficiency Solutions (EES) serve customers worldwide. The RES product and service portfolio consists of systems and solutions for solar power plants, such as solar inverters, monitoring and control systems as well as power controllers for a wide range of industrial applications such as polysilicon, energy storage, sapphire and glass. The EES product and service portfolio includes high-performance uninterruptable power supplies (UPSs), industrial chargers, and DC systems.

Thanks to its distinctive expertise bridging both AC and DC power technologies and spanning the worlds of both conventional and renewable energy, the company creates innovative solutions for smart grids.

AEG PS’ global footprint includes 22 subsidiaries, offices and competence centers around the world with 1,600 employees.

For more information, visit www.aegps.com

This communication does not constitute an offer or the solicitation of an offer to buy, sell or exchange any securities of 3W Power. This communication contains forward-looking statements which include, inter alia, statements expressing our expectations, intentions, projections, estimates, and assumptions. These forward-looking statements are based on the reasonable evaluation and opinion of the management but are subject to risks and uncertainties which are beyond the control of 3W Power and, as a general rule, difficult to predict. The management and the company cannot and do not, under any circumstances, guarantee future results or performance of 3W Power and the actual results of 3W Power may materially differ from the information expressed or implied in the forward-looking statements. As a result, investors are cautioned against relying on the forward-looking statements contained herein as a basis for their investment decisions regarding 3W Power.

3W Power undertakes no obligation to update or revise any forward-looking statement contained herein.